How to Negotiate with Collection Agencies and Win

Most people would rather have a root canal without anesthetic than talk to a collection agency. Believe it or not, though, it’s possible to negotiate with a collection agent and end up paying less than you owe.

Why is that? Because the collection agency bought the original debt from your creditor, most likely for a substantial discount. That means they don’t have to recover the entire amount to make a profit. By proposing a settlement, you can pay off the debt quickly, usually for less than the original amount.

The collection agent is motivated by getting you to pay as much money as possible with the least amount of effort on their part. The agent works on commission and gets a portion of whatever you pay.

The best outcome is to get this debt off your back by paying a lump sum and getting a receipt and a commitment from the agency to update the status of your account on your credit report to reflect payment.

Here’s how to do it
First, figure out how much you can afford to pay before you make the call. Stiffen your resolve. It will only make matters worse if you promise to pay more than you can. Be prepared to get a refusal for whatever you suggest in the beginning; the agent will almost always say no at first, and it isn’t necessarily final.

On the phone with the agent
Here’s one way to start off: “This is Jane Doe. I’ve been notified of a collection on Account #XXXXX. I can pay you $2,000 as payment in full on the account.”

If you get a “no,” ask to speak to a supervisor. The supervisor may say no also, or make a different offer. Try to figure out the amount he or she really wants. For example, if the supervisor offers to waive two months’ interest if you pay the principal that’s due on a loan, perhaps the agency would actually waive three or four months of interest. Try making a counter-offer.

If you offer to pay $2,000 and the agent suggests $7,000, then offers to split the difference, don’t do it. Instead, treat the split-the-difference number as a new top and propose an amount between that and your original offer.

If the agent makes an offer, for example to waive interest, reduce payments or let you skip a payment, you can respond by saying, “I see,” without committing immediately. The agent may then ask for something in exchange such as paying higher interest. Don’t give up more than you get.

If the agent keeps playing hardball, insisting that you pay a certain amount you can’t afford, don’t let them trap you. It’s fine to politely hang up and call back a day later. Successful negotiations may take weeks.

Finishing up the negotiations
As you continue to negotiate, tell the agent you want them to report the bill as paid in full. This can make a big difference in your credit report – so keep trying!

As you get closer to an agreement, if you settle for less than the full amount owed, be sure the creditor signs a release saying your partial payment excuses you from paying the remaining balance.

When you send in your payment, don’t send post-dated checks. The collection agency or creditor can cash them anytime, regardless of the date.

Remember: You want to get all this in writing. Get a receipt from the collection agency for what you paid. Keep copies of everything you send the agency, and everything they send you, in a file. Once you and the agency reach an agreement, check to see that the agency reported your bill as paid in full. If the agency doesn’t do so, send all and any written evidence that you paid the bill to the credit bureau.

Taxes on the debt
Be sure that you understand how much, if any, of the debt was forgiven. This is because if part of your debt was forgiven, you must pay taxes on it come April 15. The creditor will send you a 1099 form at the end of the year with that information, but it’s good to know now, so you can include this amount of money in your tax planning.

To learn more
Review and be familiar with your rights as a consumer under the “Fair Debt Collection Practices Act.” Consult your local library or BALANCE, or visit the Federal Trade Commission at

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